Google Antitrust Investigation by U.S. Could Mean Years Tied Up on Defense

Google Inc. (GOOG) may be forced to spend years defending itself in a U.S. Federal Trade Commission investigation that could be the government’s biggest antitrust probe since the Microsoft Corp. (MSFT) case.

Even if Google ultimately prevails, the probe might create uncertainty around the company’s business, slowing its momentum, lawyers and analysts said. Federal courts ruled that Microsoft engaged in illegal monopoly practices in a dispute that stretched over two U.S. presidential administrations.

“Google effectively is already running under the yellow flag of caution,” Eric Goldman, associate professor and director of the High Tech Law Institute at Santa Clara University in California, said in an interview. An FTC probe “could make it more difficult” for Google to compete, he said.

The agency is likely to examine whether Google is using its position in Internet search to subdue rivals in adjacent markets with threats and jacked-up advertising rates, the lawyers said. The company’s conduct in new sectors, such as mobile devices, also will probably be a focus, they said.

The FTC alerted technology companies of plans to gather information from them for the probe, three people familiar with the matter said in April.

The FTC’s investigation is the latest example of government regulators’ growing concern that the Mountain View, California- based company is restricting competition on the Internet.

Texas Probe

The European Union and the state of Texas have begun investigations and the U.S. Justice Department is monitoring Google’s compliance with an agreement letting it purchase ITA Software Inc.

Google has set aside $500 million for a U.S. government investigation into online pharmacy ads the company accepted that may have violated the law, a person familiar with the matter said.

The FTC is already overseeing Google’s compliance with a settlement to tighten privacy policies after charges last year its Buzz social-networking service used deceptive tactics.

The number of regulators looking at Google is like “a lot of dogs growling at their feet -- and they have to pay attention to each and every one of them,” said Rebecca Arbogast, a Washington-based analyst with Stifel Nicolaus & Co. “This is the ‘new normal’ for Google, as long as they have dominance and have their hands in so many pots.”

Mistique Cano, a spokeswoman for Google, said in an e-mail that the company “understands that with success comes scrutiny.”

“We are happy to answer questions about our business, as we have during four separate reviews by the federal government over the past four years,” she said.

Google rose $2.78 to $528.38 at 1:31 p.m. New York time on the Nasdaq Stock Market. The shares declined 12 percent this year before today.

‘Unassailable’ Advantage

Google invited regulators’ scrutiny by skewing its search results and advertising fees to favor its own services, giving it an “unassailable competitive advantage,” said Shivaun Raff, chief executive officer of Foundem, a U.K.-based price- comparison website that competes with Google.

Joshua Wright, a law professor at George Mason University in Arlington, Virginia, said the FTC will focus on potential harm to consumers, not Google’s competitors.

“I don’t believe the antitrust laws of the United States obligate Google, or rather entitle any of Google’s rivals, to specific, prominent listings,” he said in an interview.

The FTC may seek to determine whether Google illegally used its clout as owner of the world’s most popular Internet search engine to exclude competitors from such search markets as travel, said Kenneth Glazer, the former deputy director of the FTC’s Bureau of Competition.

“I’d want to focus on the area of Google’s greatest strength, which, of course, is search engines,” he said in an e-mail.

Internet Users

The investigation also may involve the FTC’s Bureau of Consumer Protection, which would look at whether Google deceived Internet users by skewing search results to favor its own services, Melissa Maxman, the Washington-based co-chair of the antitrust practice group at Cozen O’Connor, said in an interview.

Maxman said she’d be “shocked” if the consumer protection unit wasn’t involved.

The FTC should examine whether Google doctored search results to “raise the cost of Google’s rivals, raise their advertising costs, raise their development or operating costs,” said FTC official Melanie Sabo, who is likely to play a leading role in a Google probe, at a panel discussion in December.

The FTC may also want to know if Google tried “to decrease the number of eyeballs” viewing competitors’ websites, said Sabo, assistant director for the FTC’s anticompetitive practices division. Sabo said at the time she was speaking for herself and not the agency.

Antitrust Complaints

Google is already the target of antitrust complaints filed by rivals. In a case before the EU, Foundem accused Google of excluding the price-comparison website from its search results and increasing by 10,000 percent the fee for advertising on Google.

Foundem’s complaint said a Google official told the company that computer formulas used to calculate rankings were tweaked to penalize emerging price-comparison and travel Web services.

When more than three years later, Google lifted Foundem’s penalty, the company said it discovered Google was giving preference to its own competing service, Google Product Search, by placing it near or at the top of rankings.

Google has said that 80 percent of Foundem’s content wasn’t original.

In a court in Franklin County, Ohio, myTriggers.com, a shopping-comparison site, accused Google in 2008 of raising its ad rates between 1,000 percent and 10,000 percent.

Google’s power to promote its products is exaggerated by critics, said Goldman, the Santa Clara professor.

“Just because Google can market the crud out of it, doesn’t mean it’s going to win in the marketplace,” he said.

Massachusetts Lawsuit

Federal investigators may also look at Google’s treatment of Skyhook Wireless Inc., said James Grimmelmann, an associate professor of law at New York Law School who specializes in the Internet.

In a lawsuit filed in Suffolk County, Massachusetts, Superior Court, Boston-based Skyhook said Google sabotaged plans by Motorola Inc. and Samsung Electronics to use Skyhook’s location-finding software on the companies’ mobile phones.

Google, which makes a competing application, told Motorola and Samsung incorrectly that the Skyhook software didn’t work with the Google-made Android operating system running on the phones, according to the complaint.

In a May 13 court filing, Google said it hadn’t done anything wrong.

“If Skyhook suffered any damages, which is denied, then any such damages resulted solely from its own acts or omissions,” Google said.

Google’s position of dominance is unprecedented, making the outcome of any investigation unpredictable, said Bert Foer, president of the Washington-based American Antitrust Institute.

“We’ve never had a Google or a Google equivalent,” he said. “We’re going to have feel our way around.”

To contact the reporters on this story: Jeff Bliss in Washington at jbliss@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net.

To contact the editors responsible for this story: Mark Silva at msilva34@bloomberg.net; Michael Hytha at mhytha@bloomberg.net.

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